Labor Crunch Pushes State Government IT Departments Toward Outsourcing

Computerworld -

Tom Wade, CIO for the state of Georgia

Tom Wade, CIO for the state of Georgia, is dealing with aging systems, a graying IT workforce and an inability to pay private-sector wages. And as private-sector wages continue to rise as the economy improves, Wade said he hasn't been able to fill 15% of the IT positions he is allotted.
It took a year and a half to hire someone to manage the IT department's enterprise architecture division, a job that finally was filled this month. Corporate employers were paying more than the $125,000 per year that the state could offer to applicants. "We're not competitive," Wade said. One solution to his problems may be outsourcing. "It's never off the table," he said. "It's something we always have to look at."
If Reston, Va.-based consulting firm Input is right, many more state and local governments will turn to IT outsourcing over the next few years to deal with the same issues Georgia is facing. Last week, Input forecast that state and local spending on outsourcing will increase from $10 billion last year to $18 billion by 2010, a compound annual growth rate of 12%.
Input analyst James Krouse sees Virginia as a bellwether for the rest of the nation. In November, Virginia officials approved a 10-year, $2 billion agreement to hand over management of the state's IT operations to Los Angeles-based Northrop Grumman Corp.'s technology services unit. "Virginia is a prime case that is looking at something that could be a precursor for things to come," he said.
San Diego County in California awarded one of the first big local-government outsourcing contracts in the U.S. to El Segundo, Calif.-based Computer Sciences Corp. seven years ago. After rebidding the contract, the county's board of supervisors last week voted to switch vendors and awarded the Northrop Grumman Information Technology operation a seven-year deal valued at $667 million.
The 305 CSC workers assigned to the county, many of whom worked directly for the government prior to the first outsourcing agreement, will now be interviewed for jobs at Northrop Grumman, said county CIO Michael Moore.
With the new contract approved, Moore said his focus will be on ensuring that a smooth transition is completed by October, when the county's data center is scheduled to be turned over to Northrop Grumman.
Moore said the contract should also reduce the county's operating costs by helping to increase worker productivity. For instance, new mobile systems will eliminate the need for workers in the field to return to their officesto process forms, he said.
Otto Doll, CIO of the South Dakota state government, also sees new interest in outsourcing among his peers. "Right now, there is a big drive toward consolidating services -- and one of the options when one looks at consolidating is whether you are going to do it in-house or whether you are going to outsource it," he said.
But in his case, Doll said, South Dakota uses outsourcing in only a limited way, such as hiring contractors to help with application development. The state has compared the cost of outsourcing against providing IT services internally, he said, and hiring an outsourcer "doesn't prove to be a viable economic decision for us."

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